Bill English

Wellington, Sept 9 NZPA - Parliament has unanimously backed the extension of a modified retail deposit guarantee scheme despite some sniping from opposition MPs.

The scheme, introduced last year at the height of the meltdown of the international finance markets, was put in place to ensure confidence in local banks and to stop a rush of money into overseas institutions which had guarantees in place.

The law passed under urgency today means the retail deposit guarantee scheme will be extended in revised form until the end of 2011, at which point the Government hopes it can be ended without causing harm.

Parliament suspended its normal rules to allow the bill to go through all stages without referral to a select committee.

A number of MPs complained that this would lead to bad law, but National said the details in the bill were commercially sensitive and an extended process could cause uncertainty on the markets.

The Government had hoped to complete debate on the bill last night, but Labour did not allow an easy ride and debate resumed this morning.

Despite the delays, the bill passed with the support of all parties in Parliament this morning.

The current scheme ends on October 12 next year and the extended scheme will change from that date.

The scheme will become voluntary and higher fees will be charged for those with lower credit ratings.

Those with a lower rating than BB will not qualify.

While all parties backed the scheme, that did not stop some criticism.

Labour MPs argued that all banks should be forced to take part in the scheme so their fees would help cover the risk posed by smaller finance companies.

They also argued that banks had benefited from the taxpayer underwriting their risk without passing on sufficient interest rate cuts.

The Greens were upset that the Government did not insist on banks retaining jobs in New Zealand while they enjoyed its generosity.

Maori Party MPs, like others in minor parties, were unhappy because they did not see the bill until the last minute and details of the scheme were still to be released.

All parties agreed the law was necessary to ensure confidence in the financial sector until the point that the retail deposit scheme could be wound up

Over 80 institutions are covered by the scheme, with many of the smaller finance companies benefiting from it at little or no cost.

In total, more than $120 billion of deposits from around 3.5 million depositors are covered by the guarantee.

The changes to the scheme will follow a new regulatory regime for non-banking institutions being overseen by the Reserve Bank, which requires all finance companies with more than $20 million in assets to get credit ratings.

The new regulatory regime was sparked by the collapse of a number of finance companies and some are still struggling as they cope with the credit crunch in the wake of the international financial crisis.

Finance Minister Bill English warned finance companies that he was giving them time to sort their businesses out.

The Government had paid out $68 million to cover guaranteed deposits, and had received $64 million in fees from financial institutions in its first eight months of operation.